06-20-07 FPAC Minutes - Laserfiche WebLink

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1. State and local governments must comply with applicable sections of the legislative statutes • pertaining to investing public funds along with all investment policy constraints. 2. It is recommended that cash flow projections be developed and updated regularly in order to determine what dollar amount of the portfolio needs to remain liquid to meet disbursement obligations within a six month period,as well as what dollar amount is available for longer-term investing to the maximum maturity as stated in the investment policy. 3. The portfolio should be structured to provide sufficient liquidity for anticipated cash flow requirements by continuously investing a portion of the portfolio in money market type investments such as local government investment pools,money market mutual funds,overnight repurchase agreements and money market securities. 4. The maturity structure of a security should be fully understood. Prior to purchase,the government should confirm compliance with its investment constraints and overall investment strategy. If a security has options associated with it such as call options,the structure of the option should be analyzed to determine its potential impact on market risk through an analysis such as option adjusted spread(OAS) analysis. The stated maturity date should always be used to determine compliance with maximum maturity constraints,not any potential call dates unless an official announcement of a call has been released. 5. Governments should adopt weighted average maturity limitations and/or weighted average duration targets, which often range from 90 days to three years, consistent with the government's investment objectives,constraints, cash flow needs and risk tolerances. The weighted average maturity limitations can be used to limit the market risk in a portfolio consistent with the constraints in the governing state statutes and the investment policy. The weighted average duration targets can be used to manage market risk in a portfolio. 6. Unless matched to a specific cash requirement and permitted by a government's investment policy,governments should not directly invest in securities with maturities greater than five ID years. The maturities of such investments should coincide as nearly as practicable with the expected use of funds. The government should follow the process identified in its investment policy, including adhering to procedures for authorizing longer-term investments and for providing any disclosures that may be required. References • GFOA Sample Investment Policy, 2003. • Investing Public Funds, Second Edition,Girard Miller with M.Corinne Larson and W. Paul Zorn, GFOA, 1998. • www.GASB.org for GASB Statement No. 31 and Statement No. 40 Approved by the GFOA's Executive Board,March 2,2007.